Hard time with easy credit

Ubiquitous cards may rack up debt

By Melissa Tallerine
University of Southern California
Los Angeles, Calif.

LOS ANGELES (CNNSB) -- Getting that first credit card marks passage into financial adulthood for many students. A credit card can symbolize independence and maturity, but it also can mean debt -- and lots of it.

“I just got a new credit card, and I put about $300 on it in about a week-and-a-half,” said University of Southern California senior Angela Sanders.

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CNN Student Bureau reporter Melissa Tallerine talks with students and counselors on the responsibility of having credit cards. Real 28K 80K Windows Media 28K 80K

About 70 percent of college students have a credit card, according to a June 1999 study commissioned by the Washington, D.C.-based consumer advocacy group, Consumer Federation of America. Students with cards typically carry a balance of more than $2,000 and about one-fifth of them have balances exceeding $10,000, the organization reported.

It’s hardly a surprise that so many students have cards. Credit card offers are ubiquitous on college campuses, offering easy terms that make falling into a debt trap nearly as simple as signing your name on a dotted line. Many card companies also sweeten the offer, giving students free merchandise just for applying.

Some students believe that practice should stop.

Early temptation

“I think that the school is setting a bad example by including credit card applications in our bags when we buy stuff from the bookstore,” says Tamara Garton, another senior at USC. “When I came to college, that's when I got all the cards I ever wanted.”

Garton applied for too many credit cards, which can be just as damaging in some cases as having bad credit. When Garton started to get denied for new cards, she contacted a credit reporting bureau to get a copy of her credit report.

“I was denied again and again and again,” Garton said. “Every time you apply for a credit card it goes on your report, and every time that you're denied a credit card, it's put on your credit report.”

Credit cards are important tools for managing your money and maximizing your financial potential. Students and credit professionals agree that if used correctly, credit cards can help build a good credit record that will prove important for major purchases. But when credit is abused or used improperly, it can lead to unmanageable debt and financial crisis, as many college students have learned. These students can later find it difficult to get a car loan or even a mortgage loan for a house.

Minimum payment, maximum debt

Why do so many students rack up high debt so easily? Some college students embrace the pay-later mentality that many credit card companies promote, said Jennifer Root, public relations director with Consumer Credit Counseling Service of Los Angeles (CCCS). Root says she has seen first-hand how quickly big spending leads to trouble.

“People think, ‘Well, I'm making the minimum payment. Everything's OK,’” she said. Not so. According to Root, a minimum payment of $20 a month on a $1,800 loan would take 14 years to pay off, creating a debt many times larger than the original loan.

This pay-later mentality is a common problem, but for some students the real problems begin when they leave school deep in debt, and get more in the red after that.

Terri Feldman sorts through the credit cards and the debt that she aquired while in school at the University of Florida in Gainesville, Fla.

When Terri Feldman left the University of Florida in Gainesville in 1997, she was well into a nightmarish debt.

“Fifty dollars one month turned into $100 the next month, and then it turned into $3,000,” said Feldman, 27. “I graduated from college three years ago and I just paid it (the card) off last month,” the Los Angeles film producer said.

Use caution, common sense

Credit card companies frequently set up booths to market cards and take applications at the University of Southern California in Los Angeles. A booth operator representing Mastercard told students that credit cards can provide a “financial cushion for students not working full time,” and then stressed that companies that issue credit cards are “not responsible for how students manage their finances.” In fact, using credit cards without a means to pay them back is unwise financial advice, the representative said.

Garton said she has learned a valuable lesson with credit. After much effort on her part, her credit record is clean again. She said she no longer signs up for credit cards at booths on campus.

The bottom line, according to CCCS’s Jennifer Root, is that students must be responsible when using credit. They should first consider whether they can pay back the credit before they apply for the card, and they must be wary of the high-interest game, she said.

Root’s recommendation: “Get the best interest rate and then learn how to use the card.”